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10.35 Relative Volatility Index

The Relative Volatility Index (RVI) by Donald Dorsey is similar to the RSI (see Relative Strength Index) but where the RSI adds up price change amounts based on price direction, the RVI instead adds standard deviations (stddev, see Standard Deviation) based on price direction.

The standard deviation is over a past 10 days, then an EMA (see Exponential Moving Average) of deviations on up days is compared to all deviations, giving Dorsey’s original 1993 definition of RVI on closing prices.

S = Stddev[10 days]

U = /  S   if price > prev price
    \  0   otherwise

                EMA[W14] of U
RVIorig = 100 * -------------
                EMA[W14] of S

In 1995 Dorsey revised his idea, to apply RVI to the daily highs and daily lows and average the result, thus the following, which is the RVI used in Chart.

      RVIorig of highs + RVIorig of lows
RVI = ----------------------------------

When a data source doesn’t provide high/low values just the closes are used, which ends up as Dorsey’s original. The stddev period of 10 days and the default EMA of 14 days are parameters (see View Style). The EMA period follows J. Welles Wilder’s reckoning (see Wilder EMA period), the same as an RSI.

10.36 Inertia

Dorsey also smoothed the RVI with a 20-day least squares moving average (LSQMA, see Endpoint Moving Average) and called the result the inertia indicator. The 20-day smoothing period is a parameter.

An LSQMA can of course also be applied to an RVI directly, this can be good to see how it smooths. But inertia is offered as a separate selection since the smoothed line tends to follow the raw RVI quite closely, making it hard to see which is which.

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